CA Intermediate · Cost and Management Accounting · Material Cost
Mehta Engineering Ltd. uses a material with annual consumption of 36,000 units. Ordering cost is Rs 250 per order and carrying cost is Rs 5 per unit per annum. What is the EOQ?
EOQ is the square root of 2 x annual demand x ordering cost / carrying cost per unit. Here that gives about 1,897 units, so none of the listed options exactly matches.
- A1,200 units
- B1,500 units
- C1,800 unitsCorrect
- D2,400 units
Explanation
EOQ = sqrt(2 x 36,000 x 250 / 5) = sqrt(3,600,000) = 1,897, which is not an option. Rechecking: 2 x 36,000 x 250 = 18,000,000; divided by 5 = 3,600,000; sqrt = 1,897.4. So no option is exact.
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